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Leverage is offered by brokers to maximise traders' buying power as they're able to deposit a small amount of funds and trade larger volumes. Leverage is expressed as a ratio, so if it is 1:100 for example, a trader's buying power is magnified 100 times. Leverage provides opportunities for multiplied profits but at the same time, one may have multiplied losses as well.
Leverage essentially enables you to get a larger exposure to the markets than the amount that you've deposited to trade. It's similar to a loan, in that we'll lend you capital to buy even more of an asset. If your trade is successful, your profit will be even bigger. Remember though any losses you experience will be greater too.
What to learn more about leverage? Head on over to our free educational video series.
What is the FXTM leverage limit?
FXTM offers floating leverage up to 1:2000 on Advantage and Advantage Plus Accounts. And fixed leverage up to 1:1000 on the Micro Account.
Again, this also depends on your account type and the instrument you're trading. More importantly, though, the amount of leverage we offer is based on your personal knowledge and market experience so limits will vary.
What is floating leverage?
Floating leverage or Flexible leverage is a kind of leverage that changes (usually, decreases) as the notional value (i.e. volume of the open positions) increase. This mean that the higher the volume of your order, the lower the leverage becomes.
Implication: When the leverage reduce, the margin requirements for your open position will increase.
Example: Assume you open a new position BUY 0.5 lot of USDJPY 139.400 for a USD trading account.
Notional value = No. of lots (volume) * contract size (convert result into account currency)
Margin required = Notional Value / Floating leverage
In this example, the notional value for the 0.5 lot BUY USDJPY 139.400 is 0.5 lot * 100,000 = $50,000
Based on our floating leverage table, the first $50,000 notional value will be divided with leverage 1:2000. Hence, the margin required to open this position = $50,000/2000 = $25
Let's assume you open another 0.5 lot of BUY USDJPY 139.400 (you have in total 1 lot), the notional value for both positions will become = 1 lot * 100,000 = $100,000
To take into consideration the tiered leverage, the total margin required for both positions are calculated by splitting notional value into different level as shown below:
- First $50,000 / 2000 = $25
- Remaining $50,000 / 1000 = $50
- Total margin required = $25+$50 = $75
- In the case your chosen account leverage is lower than the maximum floating leverage we offer, the margin required is calculated based on your chosen account leverage until the notional value exceeded the range.
- For example, if you have chosen account leverage 1:500, the notional value for your open positions will be divided by 500 until the total notional value for all your open positions will exceed $2,000,000